Beyfield Pty Ltd v Northbuild Construction Sunshine Coast Pty Ltd [2014] QSC 12

[1] In October 2011 the applicant ("Beyfield") entered into an agreement as a subcontractor with the respondent ("Northbuild"). Northbuild was the head contractor for the construction of a Chronic Disease Centre on Thursday Island. Under the subcontract, Beyfield was to carry out the mechanical works for the project.

[2] In accordance with the subcontract, Beyfield provided Northbuild with two bank guarantees as security for the performance of the work under the agreement.

[3] In May 2013, Northbuild gave notice to Beyfield of its intention to have recourse to the bank guarantees alleging that Northbuild had incurred additional costs as a result of an alleged breach of the subcontract by Beyfield with respect to an Indigenous Employment Policy ("IEP") and other matters.

(a) Northbuild is not entitled to retain the bank guarantees; and

[5] The guarantees were provided pursuant to cl 5 of annexure A of the subcontract - "General conditions of contract".

"(a) Subject to this subcontract, the Builder may deduct and retain 10% of any progress payment to the Subcontractor until the total Retention equals 5% of the Subcontract Sum as security for the performance of the Works.

(b) The Builder may hold the Retention until the expiration of the Defects Liability Maintenance Period, provided that on Practical Completion the Builder must release to the Subcontractor that part of the Retention in excess of 2.5% of the Subcontract Sum.

(c) Nothing in this clause affects any entitlement of the Subcontractor at general law or under statute to substitute an unconditional Bond or Instrument from a security provider approved by the Builder, with a branch office in Brisbane, and in a form acceptable to the Builder for any part of the Retention.

(d) The retention, or any Bond or Instrument substituted by the Subcontractor, secures the Subcontractor's performance of its obligations under this Subcontract, including its obligations to rectify defects and replace materials.

(e) The Builder may, upon the giving of written notice to the Subcontractor, have recourse to the Retention, or convert into cash any Bond or Instruments substituted by the Subcontractor:

(i) where an amount is due to the Builder under the Subcontract; or

(ii) in respect of any claim to payment (liquidated or otherwise) the Builder may have against the Subcontractor under the Subcontract or otherwise."

[7] In accordance with sub-clause, Beyfield caused its bank to provide two bank guarantees in favour of Northbuild, each one in an amount of $96,250.

[8] Northbuild made the following claims for payment from Beyfield in the amounts and on the dates set out below:

(a) 2 May 2013 - $101,319.84 for damages for Beyfield's breach of the subcontract in failing to comply with the IEP.

(b) 24 May 2013 - $2,567 for damages for trespass being the use of a container by Beyfield which Northbuild had hired for its own use.

(c) 29 May 2013 - $135,411.24 for damages for breach of the subcontract caused by Beyfield's failure to pay freight required under the subcontract.

(d) 30 May 2013 - $7,223.88 for damages for negligent or intentional damage to accommodation provided by Northbuild to Beyfield.

(e) 21 June 2013 - $6,217.38 for breach of the subcontract caused by Beyfield's failure to pay further freight.

[9] Northbuild has, since 24 May 2013, abandoned the claim in (b) above.

[10] At the same time as notifying the claim for damages for breach of the IEP, Northbuild informed Beyfield that it intended to call on the bank guarantees for its claim relating to that matter.

[11] Beyfield obtained an injunction restraining Northbuild from calling on the bank guarantees on 1 August 2013.

[12] On 27 August 2013 Northbuild gave further notice to Beyfield that it intended to call on the bank guarantees for the sums referred to in paragraphs (b), (c) and (e) above. Northbuild had already given notice of its intention to call on the bank guarantees in relation to the claim in (d) above when it notified Beyfield of that claim on 30 May.

[13] The principal issues which arise in this case are:

(a) Whether clause 5(e)(ii) of the general conditions is void or unenforceable as a consequence of provisions of the Queensland Building Services Authority Act 1991 ("the Act")[1];

(b) Whether the notice given by the applicant was for a "debt due";

(c) Whether Northbuild had the authority to convert the bank guarantees; and

(d) Whether the claims made by Northbuild are bona fide.

The Queensland Building Services Authority Act 1991

[14] Beyfield argues that Part 4A of the Act regulates the contractual terms able to be incorporated into a building contract and, in particular, with respect to the exercise against and conversion of securities or retentions. It argues that cl 5(e)(ii) of the general conditions is:

(a) void as it contravenes Part 4A of the Act, or, alternatively

(b) inoperative as it is an attempt to contract out of the provisions of the Act.

[15] Section 14A of the Acts Interpretation Act 1954 provides that "In the interpretation of a provision of an Act, the interpretation that will best achieve the purpose of the Act is to be preferred to any other interpretation." I commence by noting that s 3 of the Act provides:

(i) to ensure the maintenance of proper standards in the industry; and

(ii) to achieve a reasonable balance between the interests of building contractors and consumers ..."

[16] Part 4A of the Act deals with building contracts other than domestic building contracts. In that part, the following terms are defined in s 67A:

● "contracted party, for a building contract, means the party to the contract who is to carry out the building work the subject of the contract." (In this case Beyfield is the contracted party.)

● "contracting party, for a building contract, means the party to the contract for whom the building work the subject of the contract is to be carried out." (In this case Northbuild is the contracting party.)

● "retention amount, for a building contract, means an amount described in section 67C."

● "security, for a building contract, means something -

(a) given to, or for the direct or indirect benefit of, the contracting party for the contract by or for the contracted party for the contract; and

(b) intended to secure, wholly or partly, the performance of the contract; and

(c) in the form of either, or a combination of both, of the following -

(i) an amount, other than an amount held as a retention amount for the contract;

(ii) 1 or more valuable instruments, whether or not exchanged for, or held instead of, a retention amount for the contract."

● "valuable instrument" is defined to include a banker's undertaking.

[17] The bank guarantees provided by Beyfield are securities within the meaning set out in s 67A.

[18] A "building contract" is defined in s 67AAA:

"For this part, a building contract means a contract or other arrangement for carrying out building work in Queensland but does not include -

(b) a contract exclusively for construction work that is not building work."

[19] The agreement between the parties is such a building contract.

"For this part, an amount is a retention amount for a building contract if -

(a) the amount is payable as part of the contract price under the building contract, but, under the contract, may be withheld from payment to the contracted party for the building contract -

(i) during the progress of the building work the subject of the contract; or

(ii) for a period (a maintenance period) after the completion of the building work; or

(iii) both during the progress of the building work and for a maintenance period; and

(b) the purpose of withholding the amount is to give financial protection to the contracting party in relation to the need to correct defects in the building work, or otherwise to secure, wholly or partly, the performance of the contract."

"(1) Subject to any provision of this part that expressly provides that a building contract, or a provision of a building contract, is void, this part does not have effect to make void or voidable a building contract, or a provision of a building contract, even if -

(a) in entering into the building contract, or the building contract containing the provision, a party to the building contract commits an offence against this part; or

(b) the building contract or the provision of the building contract is inconsistent with a condition to which the building contract is subject under this part.

(2) However, if a building contract, or a provision of a building contract, is inconsistent with a provision (the Act provision) of this part applying to the building contract, the building contract, or the provision of the building contract, has effect only to the extent it is not inconsistent with the Act provision.

(3) Without limiting subsection (2), a building contract is unenforceable against the contracted party for the contract to the extent that the contract provides for retention amounts or security in a way that is inconsistent with a condition to which the contract is subject under division 2.

(a) has effect in relation to a building contract despite anything in the building contract; and

(i) the contract was entered into outside Queensland; or

(ii) the parties to the contract have agreed that the law of Queensland does not apply to the contract or to a provision of the contract." (emphasis added)

[23] The word "condition" used in s 67E(3) is defined in Schedule 2 of the Act as including a limitation or restriction. The provisions of s 67J, below, constitute a restriction in that they impose a time limit on claims.

[24] Division 2 of Part 4A has the heading: "All building contracts." This is a part of the Act[2].

[25] Section 67G(4)(d) provides that a building contract in writing complies with the formal requirements for a building contract if the contract states, among other things, "the parties' agreement about retention amounts and securities to be held". The parties have done this in cl 5 of the agreement.

"(1) The contracting party for a building contract may use a security or retention amount, in whole or in part, to obtain an amount owed under the contract, only if the contracting party has given notice in writing to the contracted party advising of the proposed use and of the amount owed.

(2) The notice must be given within 28 days after the contracting party becomes aware, or ought reasonably to have become aware, of the contracting party's right to obtain the amount owed.

(3) If, because of subsections (1) and (2), the contracting party is stopped from using a security or retention amount, the contracting party for the contract is not stopped from recovering the amount owed in another way.

(4) This section does not apply if, under the contract -

(a) work has been taken out of the hands of the contracted party or the contract has been terminated; or

(b) the security or retention amount is to be used to make a payment into court to satisfy a notice of claim of charge under the Subcontractors' Charges Act 1974.

amount owed, under a building contract, means an amount that, under the contract, is a debt due from the contracted party for the contract to the contracting party for the contract because of circumstances associated with the contracted party's performance of the contract.

use of security or retention amount includes the act of converting securities into cash where the securities are held as negotiable instruments." (emphasis added)

[27] Section 67J is in division 2 of the Act and is, thus, affected by s 67E.[3]

"(1) A building contract is subject to a condition that, at any time after, under the contract, practical completion of building work is reached, the total value of the following is to be not more than 2.5% of the contract price for the contract -

(a) all retention amounts for the contract that are being withheld;

(b) all securities for the contract given and still held.

(2) Subsection (1) does not apply to retention amounts or securities to the extent that the retention amounts or securities do not relate to the need to correct defects, identified in the defects liability period under the contract, in the building work under the contract."

"A person can not contract out of the provisions of this Act."

Is clause 5(e)(ii) of the general conditions void or unenforceable or inoperative?

[30] The general approach to the construction of statutes was set out in Project Blue Sky v Australian Broadcasting Authority[4] where the following appears:

"[69] The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined "by reference to the language of the instrument viewed as a whole". In Commissioner for Railways (NSW) v Agalianos, Dixon CJ pointed out that "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed". Thus, the process of construction must always begin by examining the context of the provision that is being construed.

[70] A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions. Reconciling conflicting provisions will often require the court "to determine which is the leading provision and which the subordinate provision, and which must give way to the other" . Only by determining the hierarchy of the provisions will it be possible in many cases to give each provision the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme.

[71] Furthermore, a court construing a statutory provision must strive to give meaning to every word of the provision. In The Commonwealth v Baume Griffith CJ cited R v Berchet to support the proposition that it was "a known rule in the interpretation of Statutes that such a sense is to be made upon the whole as that no clause, sentence, or word shall prove superfluous, void, or insignificant, if by any other construction they may all be made useful and pertinent".[5] (citations omitted, emphasis added)

[31] Beyfield argues that clause 5(e)(iii) is caught by the provisions of the Act. It says:

(a) The bank guarantees are "retention amounts" for the purposes of Part 4A of the Act.

(b) A provision of a Part 4A "building contract" has effect only to the extent that it is not inconsistent with a provision of Part 4A.

(c) Section 67J requires that 28 days notice be given before a retention amount can be used for "an amount owed under the contract", that is, a debt due from one party to the other.

(d) Section 67J sets out the only way in which retention amounts can be exercised or converted.

(e) Clause 5 purports to grant a power to exercise or convert retention amounts in circumstances where there is not a debt due, that is, where damages are claimed.

(f) Clause 5 is void to that extent because it is inconsistent with s 67J.

[32] Northbuild argues that there is nothing in the language of s 67J to justify interpreting it as setting out the only circumstance in which a retention amount can be converted. It says that neither s 67J nor s 108D provides that parties to a building contract cannot agree that a retention amount may be used in circumstances other than where there is an "amount owed". In other words, cl 5 is not inconsistent with s 67J and so it does allow the conversion of a security where only damages are claimed.

[33] It follows from Northbuild's argument that if there was a debt of $1000 under the contract a retention amount could not be converted unless notice was given. But, notice would not need to be given if the conversion was to satisfy a claim where the same amount was sought as, say, damages for trespass. This, Northbuild submits, simply demonstrates that the legislature intended that the parties to a building contract would be free to agree as they wished with respect to matters which were not a "debt due".

[34] Beyfield argues that the Act does not allow for that to occur and submits that guidance can be obtained from the Explanatory Notes tabled when the Bill which led to that Act was before Parliament. In those Notes the following appears:

"Clause 28 inserts a new Part 4A - Building Contracts other than Domestic Building Contracts. This new Part provides regulatory recognition of building industry practice whereby there is a chain of contracts governing performance of building work. The part relieves subcontractors of some unconscionable contract provisions and deems desirable provisions into some contracts. The Part only applies to contracts other than domestic building contracts because of different conditions in the house-building industry and the regulatory environment provided by Part 4 of the Act.

S67E removes doubt that this Part only makes void any conditions of contract expressly made void by this Part, and that it applies to all contracts, even if in entering into the contract an offence is committed or the contract is entered into outside Queensland. The Part also has effect despite anything contained in a building contract. Contractual provisions that conflict with the provisions of this Part are invalid to the extent of the inconsistency.

S67J limits the scope of set-offs available to contracting parties. Set-offs are where amounts payable to contractors are reduced to take account of, for example, site clean-up costs incurred by the contracting party. Set-off provisions are often used in contracts in respect of retention amounts held during the warranty liability period, which may endure for some years. This section requires such set-offs to be claimable from the contracted party only if timely notice (28 days) is provided to the contracted party. The section recognises that in some instances, the right to set-off may be known well before the amount of set-off is known. For example, cracks appear in a wall during the warranty retention period. This would trigger the section's requirement (within 28 days) to provide the contracted party with a notice. When engineering investigations define the scope of work and tenders are called, a second notice is required to be sent within 3 business days of the amount being known. This will prevent set-offs being effected when the trail has gone cold and the contracted party is in no position to dispute alleged facts. It should be noted that this provision does not prevent a contracting party who has lost the right to set-off from subsequently recovering moneys duly owing." (emphasis added)

[35] Recourse can be had to an Explanatory Note in any of the circumstances set out in s 14B of the Acts Interpretation Act 1954, not just where a provision may appear ambiguous or obscure. An Explanatory Note may be referred to for any of these purposes:

"(a) if the provision is ambiguous or obscure - to provide an interpretation of it; or

(b) if the ordinary meaning of the provision leads to a result that is manifestly absurd or is unreasonable - to provide an interpretation that avoids such a result; or

(c) in any other case - to confirm the interpretation."

[36] In this case, each of those factors is available.

[37] It is argued for Beyfield that the Act and, in particular, s 67J is remedial in character and is intended to supplant the operation of any contract caught by its operation. Section 67J, it was submitted, should be construed to "... give the fullest relief the fair meaning of it language will allow".[6] While there is ample authority for the proposition just referred to, it will only have application where more than one construction is available or where there is uncertainty about the meaning of the relevant words. If, for example, the words of a statute properly described as remedial give rise to a question about the adoption of a "broad" construction or a "narrow" construction, then the principle may be invoked. In the absence of such a choice the principle has no application.[7]

[38] The coverage of s 67J was considered in Multiplex Ltd v Qantas Airways Ltd [8]. In dealing with the submissions, Keane JA said:

"[6] It will be noted that s 67J is concerned to regulate the reduction of 'an amount payable under the contract' by 'an amount owed under the contract'. It is concerned with amounts which are, in truth, payable or owed under the contract. It is not concerned with amounts 'claimed to be owing' or with amounts 'certified as payable'. ..."

"[35] Moreover, s 67J is concerned with a wide variety of circumstances in which an amount may become owing by the builder to the owner. In the particular case of liquidated damages, the quantification of the amount owed is effected by the contract itself, so that the amount owed is quantified by the contract as and when the right to obtain that amount arises. ..."

[39] Section 67C provides a definition of "retention amount" which applies to Part 4A. That Part contains a number of sections which subject a building contract to certain conditions. Sections 67K, 67L and 67M, for example, specifically provide that a contract is "subject to a condition ...". Section 67J is not expressed in that way, but it is implicit that its terms will apply unless the circumstances set out in s 67J(4) exist. Thus, no matter what a contract might say, the notice requirements will apply in the absence of those circumstances. Those requirements are limitations or restrictions upon the capacity to have recourse to retention amounts and, as such, are "conditions" for the purposes of s 67E(3).

[40] Section 67J also confines the operation of retention clauses to "debts due". To argue, as Northbuild does, that this section does not apply to matters other than "debts due" is inconsistent with the scheme of this Part of the Act. The Act sets out to regulate the building industry and to limit the scope of set-offs to contracting parties. Any ambiguity in the construction of s 67J should be resolved by reference to those matters. It is remedial legislation in many respects and that can be seen from the sections which work to impose conditions expressly. While s 67J does not, in terms, impose a condition it restricts the use which a contracting party may make of a security.

[41] The term relied upon by Northbuild - cl 5(e)(ii) - is inconsistent with s 67J to the extent that it purports to allow access to a security for the purposes of satisfying claims which are not for "amounts owed". The clause is, then, unenforceable to that extent and Northbuild cannot use the securities for its unliquidated claims.

[42] If, contrary to my conclusions about the operation of the Act, securities may be called on for unliquidated claims, it is appropriate that I consider the other arguments advanced by the parties.

[43] In its Amended Originating Application Beyfield seeks, among other things, three declarations to the following effect:

(a) That Northbuild is not entitled to retain both bank guarantees.

(b) That Beyfield has not breached the contract in relation to obligations concerning indigenous employment.

(c) That Beyfield is not liable to the claims for payment identified in Northbuild's notice of 27 August 2013.

[44] Northbuild submitted, correctly, that when a party seeks a negative declaration, that party bears the onus of proving that negative proposition.[9]

[45] Beyfield advances two arguments. First, it says that cl 5 does not extend to the claims made by Northbuild. Secondly, it submits that the claims made are not bona fide.

[46] Beyfield argues that cl 5 only extends to matters arising under the contract. Against that is the contention by Northbuild that the words "or otherwise" in cl. 5(e)(ii) extend the authorisation to have recourse to the bank guarantees to any ground, whether under the contract or not. Alternatively, Northbuild argues that the claims it makes are for amounts due under the contract but that those amounts had not, at the relevant times, matured into an "actual amount due as defined".

[47] It is convenient to deal first with the nature of the amounts claimed, for, if they are amounts owed under the contract or the claims are not made bona fide then there is no need to consider the meaning of the words "or otherwise" in cl 5(e)(ii).

[48] Northbuild informed Beyfield that it would not make a payment pursuant to a request for payment because, in effect, Beyfield had not complied with the IEP under the contract.

[49] In July 2013 the amount of $103,728.78 was said by Northbuild to be owing to it by Beyfield because Northbuild was required to incur additional costs as it had employed extra indigenous employees to ensure the project complied with the IEP.

[50] Reference to the IEP can be found in Annexures 'C' and 'H' to the subcontract. In cl 102 of Annexure C the following appears:

"102 Compliance with the 10% Training Policy and 20% Indigenous Employment Quality (sic) must be achieved. Provide information concerning actual, total, full time equivalent employments supported by the project over the construction phase."

[51] Annexure 'H' to the subcontract is a form headed "20% Indigenous Employment Policy" and it contains spaces for the details of employees and the type of work undertaken and so on to be inserted on the form. The form also contains the following:

"This Subcontract is subject to the Queensland government 20% indigenous employment policy.

The intention of the policy is that 20% of all onsite labour hrs in this sub-contract are by indigenous employees. All endeavours must be undertaken to comply with this policy."

[52] The parties agreed that the "Indigenous Employment Policy for Queensland Government" applies to the works the subject of this dispute. One of the described aims of the policy was as follows:

"This policy promotes, encourages and creates skills development, employment and business and opportunities for Aboriginal people and Torres Strait Islanders in relation to Queensland Government building and civil construction projects in specified Aboriginal and Torres Strait Island communities."

[53] The policy describes the broad requirements in the following way:

"This policy applies to all civil construction contracts with no minimum threshold and building construction projects exceeding $250,000 (GST inclusive) in value. However, projects of lesser value can be clustered together in a contract to reach the threshold value.

This policy requires a 20% minimum benchmark of total labour hours - with half of the deemed labour hours required to involve accredited training. The indigenous workforce is to be recruited from the local Aboriginal and Torres Strait Islander community/ies."

[54] The policy goes on to provide details of how it might be implemented and, on page 9 of the policy, the consequence of non compliance is set out:

"Failure to comply in part or in whole with the requirements to engage indigenous workers/enterprises from the local indigenous community may result in the contractor being excluded from tendering for government funded construction projects in indigenous communities in Queensland."

[55] The contract between Northbuild and the Principal was subject to a document entitled "Supplementary Special Conditions of Contract".

[56] It related specifically to the engagement of indigenous community workers. It also required that Northbuild prepare a Compliance Plan and submit in accordance with the Supplementary Special Conditions and that the contractor must obtain the approval of the applicable local indigenous community or council to its Compliance Plan. A Compliance Plan was submitted but no approval was obtained. That brings into consideration cl 29.1A.6 which provides:

"29.1A.6 Where a Compliance Plan is not submitted in accordance with subclause 29.1A.5(a), the Contractor shall, unless and until an alternative Compliance Plan is submitted to the satisfaction of the Principal, in its execution of the work under the Contract, either directly or indirectly through subcontractors and in consultation with the local Indigenous community, engage Indigenous workers from the local Indigenous community for the number of labour hours no less than the number derived by multiplying the accepted GST inclusive Contract Sum by 0.16%: viz

GST inclusive Contract Sum x .16% - number of labour hours.

A minimum of 50% of the labour hours calculated pursuant to this clause 29.1A.6 shall be performed by apprentices/trainees or other employees from the local Indigenous community, undertaking accredited training.

Where this subclause 29.1A.6 applies, the Contractor must submit to CSQ with a copy to the Superintendent a Compliance Plan identifying compliance with 'minimum deemed hours'."

[57] Northbuild relies upon cl 4(b) of the Subcontract which provides that Beyfield "agrees to assume to [Northbuild] the same obligations as [Northbuild] has assumed under the Head Contract in respect of the Works as part of the Subcontract."

[58] Northbuild argues that the requirements in cl 29.1A.6 of the Supplementary Special Conditions therefore apply to the same extent to Beyfield.

[59] Northbuild contends that the requirements of the IEP were not complied with by Beyfield. That arises out of a misconstruction of the requirements of the Supplementary Special Conditions. Clause 29.1A.4 provides:

"The Contractor, in its execution of the work under the Contract, either directly or indirectly through subcontractors, and in consultation with the local Indigenous community, shall comply with the IEP Policy and the Compliance Plan submitted in accordance with clause 29.1A.5."

[60] As is noted above, the Compliance Plan did not come into force because there was no agreement to it. The construction of the contract which I favour is that cl 29.1A.6 defines the extent of the requirements of a contractor where a Compliance Plan has not been submitted and approved.

[61] The calculations pursuant to the provisions of cl 29.1A.6 are contained within the material and demonstrate to my satisfaction that the requirements of that clause, assuming that they apply to Beyfield, have been satisfied. Northbuild argues that one looks at the IEP and finds that there has been a shortfall in the hours worked of some 50%.

[62] I do not accept that. The IEP contains examples of the manner of working out how many hours were needed to satisfy the policy and that is consistent with the approach taken by Beyfield.

[63] In any event, the work which was performed by indigenous employees in order to satisfy what Northbuild regarded as its obligations under the contract with the principal was not work which was done under the contract. The work which was performed, so that Northbuild could comply with what it regarded as its obligations, was work which was not necessary for the contract and was done simply in order to build up a sufficient quantum of hours to satisfy the supposed requirements. As such, it does not constitute an amount due to the building under the subcontract nor can it be a claim to payment under cl 5(e) of the General Conditions of Subcontract.

[64] Further, the consequence of a failure to comply with the IEP (if it applied) or the alternative Compliance Plan in cl 29.1A.6 of the Supplementary Special Conditions resulted only in the possibility of a decision to preclude Northbuild from further tendering for work in indigenous communities in Queensland. A failure to comply would not result in any monetary loss by Northbuild but the possibility (and it can be put no higher than that) of not being able to tender for certain types of work referred to above. The amount claimed by Northbuild is not an amount able to be characterised as an amount owed under the contract.

[65] The respondent has claimed from the applicant damages for breach caused by the applicant's failure to pay freight required under the subcontract. The evidence is clear that the tender for the work to be performed by Beyfield, which was accepted by Northbuild, was on the basis that no allowance had been made for freight.

[66] The issue concerning freight has been the subject of an adjudication made under the Building and Construction Industry Payments Act 2004. The adjudicator held that Northbuild was not entitled to its claim for freight.

[67] In those circumstances, it cannot be said that the claims for freight are bona fide. The existence of a bona fide claim is a necessary element in the exercise of a right to convert a security.[10] This was dealt with in greater detail by Pembroke J when he said:[11]

"[13] It is stating the obvious to say that a valid claim within the meaning of clause 5.2 must be non-fraudulent. In that sense, it must be a genuine claim. It adds nothing to say that it must be bona fide. On the other hand, despite occasional suggestions to the contrary, I am satisfied that a mere honest or bona fide "belief" in a claim is insufficient: cf Clough Engineering Ltd v Oil & Natural Gas Corporation Ltd [2008] FCAFC 136 at [102]. The test could not be subjective honesty or bona fides. More is required. A claim that is irrational and misconceived could not justify recourse to the security simply because the claimant had an honest, but wrongheaded, belief in the correctness of its claim. Equally, it is inappropriate to insist that the claim be "genuine and fair" as the plaintiff submitted. And it is certainly not necessary that the claim be reasonable. Both would impose requirements on the principal that could well be onerous and productive of disputes.

[14] What is required in my view is an arguable claim - one that is not specious, fanciful or untenable: Hughes Bros v Telede Pty Ltd [(1989) 7 BCL 210] at 216 (Cole J). This is at least consistent with decisions that have held that an "entitlement" for the purpose of such a clause will have been established even though there is a genuine dispute or serious issue to be tried as to the existence of the right which underpins the entitlement: Fletcher Construction v Varnsdorf [[1998] 3 VR 812] at 821-3 (per Charles JA).

[15] For my part, I think that the test of what is a "claim" for the purpose of a contractual provision such as clause 5.2 is relatively undemanding. An appropriate analogy is the criterion used for determining whether there should, or should not be, summary dismissal of a claim or proceeding: General Steel Industries v Commissioner for Railways [1964] HCA 69; (1964) 112 CLR 125. Such an approach would, in my view, reflect the commercial purpose and the allocation of risk which I have explained."

[68] None of the claims made either for freight or under the provisions relating to the employment of indigenous workers have been made bona fide.

[69] The finding that there is an absence of bona fides means that it is unnecessary to consider further whether the provision of the contract in cl 5(e)(ii) extend beyond the amounts that might be due under the contract through use of the words "or otherwise". This finding does not mean that there may not be another method by which Northbuild can seek those payments.

[70] The applicant has been successful. The applicant is to bring in minutes of order. I will hear the parties on costs.

[1] The Act was renamed the Queensland Building and Construction Commission Act 1991 from 29 August 2013. See Queensland Building Services Authority Amendment Act 2013.

[2] Acts Interpretation Act 1954, s 14(1).

[4] [1998] HCA 28; (1998) 194 CLR 355.

[5] per McHugh, Gummow, Kirby and Hayne JJ at [69]-[71].

[6] Bull v Attorney-General (NSW) [1913] HCA 60; (1913) 17 CLR 370 at 384; Brisbane City Council v Mainsel Investments Pty Ltd [1989] 2 Qd R 204 at 213, 214.

[7] Minister Administering the Crown Lands Act v NSW Aboriginal Land Council (2008) 237 CLR 285 at 301.

[8] [2006] QCA 337.

[9] Warner v Hung (No 2) [2011] FCA 1123; (2011) 297 ALR 56 at [46]- [47].

[10] Bachmann Pty Ltd v BHP PowerNew Zealand Ltd [1998] VSCA 40; [1999] 1 VR 420.

[11] FMT Aircraft Gate Support Systems v Sydney Ports Corporation [2010] NSWSC 1108 at [13]- [15].